Monday, October 15, 2012

Economic cycles I

The ten minute mini-day times 144 reappears as the day (1440 minutes), times 144 as the twenty week Wall Cycle, times 144 as the inflation/deflation Kondratieff Wave, times 144 as the 8000 year Spengler cycle in which four mighty cultures (of 2000 years each) rise and fall.

The desire/will pendulum within a complete cycle one can be pictured as follows:

Year of Dawn: from the lairs of night herds of Southern Desire emerge and begin to timidly graze.
Year of Noon: grown bold, the herds of desire graze everywhere.
Year of Sunset: the answering predators of Northern Will begin to trim the ranks.
Year of Midnight: the predators of will dine en masse in a royal contest for turf.
We derive these moods from only two sets of contraries: desire vs. will and joy (superfluous energy) vs hunger or gloomy revenge (lagging energy). These will modulate into a fourfold sequence such as that of the Years above, shown here as four phases of the (48 to 64 year) Kondratieff Wave.

Of course these are driven by economic events which account for cycles in the equity markets.  In theory equity markets anticipate economic cycle.

The three most important cycles are:

  1. the 3-4 year Kitchin inventory cycle,
  2. the 7-10 year Juglar business investment cycle and
  3. the 15-18 year Kuznets cycle in housing construction / prices and associated consumer spending.
We have mentioned these cycles in the past, but we have referred to the Kitchin Cycle most often.  The PMI reports tell us we are seeing a decline in manufacturing.  Freightliner, Paccar, Cummins, Whirlpool and others have announced cutbacks. 

JD Hunt the largest trucker just reported a stinko quarter.  Fedex issued negative guidance.This implies that inventory levels are high and retailers/merchants are ordering less as they try to work off inventory.  Also, import levels are not increasing as the Eurozone is in a recession and China is showing slower growth.  All pointing to a slow down in inventory accumulation and probably a pull back in inventory levels.

In summary - an inventory trough is approaching.  Now, the economic cycles and equity cycles do not often occur at the same time.  If as expected the equity market moves first that could occur in the 4th qtr of 2012 or 1st qtr of 2013.  It is due within the 3-4 year (average about 3.5 years or 42 months),  but may be nearer the 4 year (48 month) time frame because of Federal Reserve intervention. 

Here is a visual  of the Kitchin and shorter nested cycles:

We will discuss other longer cycles in subsequent posts.  As you would expect if we get multiple economic cycles contributing to a move then that move becomes substantial. 

Our call for the prior week (downside bias and suggesion of buying and inverse as insurance) was on the mark.  IMO the bears continue to be in control for now, so hold your inverses...  GL traders.

3 comments:

  1. After 2 days of pretty good index increases, do you still think bears are in control? Any forecasts for the rest of the week? tks in advance.

    ReplyDelete
  2. Testy99 - possibly. Seems the 22TD cycle should top Wed. We will see...

    ReplyDelete
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